The diffusion of management accounting innovations : a study of the factors influencing the adoption, implementation levels and success of ABC

Al-Omiri, Mohammed Fawaz R. (2003) The diffusion of management accounting innovations : a study of the factors influencing the adoption, implementation levels and success of ABC. Doctoral thesis, University of Huddersfield.

Abstract

During the late 1980s considerable publicity was given to the criticisms of managementaccounting. In response to these criticisms new innovations emerged. The innovationthat has attracted the greatest interest has been activity-based costing (ABC). This studygathers empirical data to examine various issues relating to ABC derived from anextensive review and synthesis of the relevant literature, including the contingencytheory literature. The major aims of the study are to investigate the extent to whichvarious contextual factors influence the adoption of ABC systems, to determine thereasons and factors which have discouraged firms from adopting ABC and to examinethe impact of various factors in determining the success of ABC systems. Otherobjectives include examining the importance of specific motives for implementing ABCsystems and examining the extent to which other accounting innovations and strategicmanagement accounting practices are associated with the adoption/non-adoption of ABCsystems.

A postal questionnaire was conducted using 1,000 UK manufacturing and nonmanufacturingorganisations with an annual sales turnover in excess of £50 million as thetarget population. Not-for-profit organisations were excluded from the populationsample. The findings are based on 176 responses (a usable response rate of 19%).

Strong support was found for the intensity of the competitive environment, size, extent ofthe use of lean production techniques (including JIT techniques), importance of costinformation, extent of the use of innovative/strategic management accounting techniquesand corporate sector having a significant influence in the adoption of ABC systems.Using factor analysis, three factors were found to be significantly associated with ABCsuccess. They were managerial understanding and the ability to use ABC information,positive attitudes by accounting staff towards ABC and adequate training for ABC and aclear understanding of its purposes. The dominant motives for implementing ABCrelated to the deficiencies of the existing system such as the existing system notproviding useful information to management, it was necessary to update the existingcosting information system and the existing costing system was not reliable. The mostimportant reasons for not implementing ABC were that the perceived benefits did notjustify the cost of implementing it, most of the indirect costs were fixed, the existingsystem was considered satisfactory for controlling overheads and the general lack ofsupport from top management or individuals to act as champions.

A distinguishing feature of the study is that it overcomes the deficiencies of previousABC studies that have used bivariate statistical tests. These studies have examinedindependently, without controlling for the impact of other variables in the model,whether the difference between ABC adopters and non-adopters are statisticallysignificant in respect of each of the selected contextual variables. This study usesmutivariate binary logistical regression that systematically controls for the impact of theother explanatory variables that are likely to influence the adoption of ABC.